Automakers want to sell subscription services. Will customers sign up?
During a recent review of her budget, Shelby Spray found that she and her boyfriend were paying for at least seven subscription services, mostly for entertainment, which ended up costing them around $ 120 per month.
“We realized the number of subscriptions we signed up for, and it was really overwhelming,” said the 29-year-old from Cicero, Indiana.
Consumers have grown accustomed to seeing a plethora of subscription fees on their monthly credit card statements for services that span almost every aspect of their lives: music and entertainment, fitness, grocery delivery, clothing, cosmetics, kits meals and more. The average American consumer had 12 paid media and entertainment subscriptions before the start of the COVID-19 pandemic, according to a recent report from Deloitte, which also found an acceleration in cancellations amid a surge in demand. saying “subscription fatigue”.
In the years to come, consumers are likely to see even more offers from the companies they are most accustomed to making large and infrequent purchases from: automakers. Automakers are investing heavily in software and technologies that will enable new subscription-based services to build customer loyalty, stay competitive, and develop new sources of recurring revenue to fund their transition to electric vehicles.
Automakers are betting they can follow the lead of companies like Netflix and Peloton and convince customers to pay for products and services that provide convenience, personalization, and seamless integration with other technologies in their lives. But U.S. consumers are already paying hundreds of dollars a month on subscriptions, and experts warn the proposal could be more difficult than auto executives realize.
“We’re starting to see signs and evidence from consumers that they’re going to push this kind of concept hard enough,” said Kristin Kolodge, executive director of human-machine interface for JD Power. “While this subscription-based concept is certainly a new trend in all aspects of life, the automotive experience is going to have to change significantly for it to be successful. “
Take, for example, Spray, who recently paid for their 2012 Ford Focus and are happy with their basic specs.
“I’m not going to want to spend more money on something that I know I can get for free in an older vehicle,” she said. “And I’m probably going to get mad if the thing I get for free now costs me $ 9.99 a month.”
Yet the potential applications of connected services are seemingly endless: hands-free driving, telematics, infotainment upgrades, Wi-Fi, maintenance diagnostics and alerts, improved navigation, driver assistance features, updates. on traffic and road conditions.
“The possibilities are limitless, especially as the vehicle becomes an extension of the way people live their lives at home and at work,” said Ashok Divakaran, Head of Connected and Autonomous Vehicles Practice at Deloitte Consulting. LLP.
And unlike streaming media services, which compete for customers’ limited free time, connected vehicle services are “more fundamentally about unmet needs.”
“A lot of the challenges to building a connected business are more internal than external, because from the customer’s point of view, everyone already expects things to be connected,” Divakaran said. “The ball is in the OEM’s court to make the most of this opportunity.”
Bet big on connectivity
Automakers are positioning themselves more and more as software and technology companies as they pursue ambitious growth goals and try to find ways to retain customers and portfolios on an ongoing basis.
General Motors Co. at an investor day last month said it plans to double its revenue to around $ 280 billion by 2030 and achieve profit margins of between 12% and 14%. % by then, with connected services and subscriptions driving much of this growth.
The Detroit-based automaker predicts that its annual software and services revenue will be between $ 20 billion and $ 25 billion by 2030, when it plans to have 30 million cars connected on U.S. roads. “Software-based services will transform our business model, there is no doubt,” said Alan Wexler, senior vice president of innovation and growth at GM at the time.
The company says it generates $ 2 billion in annual revenue from subscriptions and has some 4.2 million customers paying subscriptions for programs like OnStar, 25, which provides emergency services, safety in the vehicle, hands-free calls and more. Already, GM’s subscription business is comparable to that of companies like Netflix in terms of scale and profitability, according to Wexler.
“Within subscription services, one metric we are currently focusing on is customer share in the portfolio,” he said. “We know our products and services don’t exist in a vacuum.”
But a recent survey conducted by the company suggested that “with the right mix of compelling offers,” consumers, on average, are willing to spend $ 135 per month on products and services, Wexler said.
Digital connectivity is also at the heart of Ford Motor Co.’s growth strategy. By 2030, the Dearborn automaker predicts that new connected services could represent more than $ 20 billion in revenue.
The company recently launched a new software platform on some of its new vehicles that gives them the ability to read data and perform over-the-air software updates. Already this year, Ford has performed 1 million OTA updates, executives said at a Wolfe Research event on Monday. And by 2028, Ford plans to have 33 million connected vehicles on the road.
This capability “gives us a huge opportunity to earn on the benefits of recurring revenue subscriptions,” said Hau Thai-Tang, head of Ford’s product platform and operations, Monday.
Stellantis NV, meanwhile, has not disclosed its software strategy but plans to do so soon. The transatlantic automaker is already making “a lot” of money from subscriptions, news director Mamatha Chamarthi told Detroit News.
“The world today, and especially the pandemic, has proven that people will pay for convenience, the same way we subscribe to Instacart because it is so convenient to have groceries delivered to their homes. “she said.
The move from hardware to software, Chamarthi said, is all about using vehicle data to personalize the customer experience. Subscription services under the Jeep brand, for example, could help owners personalize their off-road experiences through configurable packages. Under the Dodge brand, services could be more performance oriented.
“Can I help you download your favorite racing driver’s racing specs, including his favorite music he is listening to and offer it as a subscription?” Said Chamarthi. “These are the areas where we would like to customize it to your tastes … and offer that as a subscription.”
And automakers see huge opportunities in the commercial market, where many customers are willing to pay for data and tools that help them reduce costs, increase productivity, and increase the uptime of their fleets.
“Business versus retail is totally different,” Ted Cannis, CEO of Ford Pro, Ford’s standalone business, told The News.
Last year, Ford launched a software platform and subscription service that allows commercial vehicle owners to access data from connected vehicles. Cannis declined to provide a specific revenue target, but called the growth opportunity for connected services in the commercial market “huge.” From the single electric vehicle charging depot, a single subscription possibility, Ford Pro is targeting more than $ 1 billion in revenue by 2030.
Distrustful customers look for value
Yet, experts say, to realize the full potential of connected services, automakers will need to come up with unique offerings and convince increasingly weary customers of their valuable subscriptions.
A recent JD Power study found that for more than one in three advanced technology in vehicles today, less than half of owners have used the technology within the first 90 days of ownership.
“When we talk about subscription services, I think we have a more fundamental problem: people are underutilizing the technologies they own and are already paying for,” Kolodge said. She noted that another survey over the past year found that two-thirds of vehicle owners would not be willing to pay for their car’s app.
And, according to experts and consumers, automakers could run the risk of alienating customers if they are seen to be seizing money for services that are now free or involve basic functions. of the vehicle.
“I would consider something like hands-free driving or lane assist as something that should be a basic and standard feature of the car,” said Andrew Keck, 34, of Bristol, Connecticut. “It’s a few (of them) putting their hands in my wallet for something that I feel like the technology (they) has been working on for so long and I feel like it should. really be something that I don’t have to charge extra for. “
Chris Cruise, 39, of the Township of Waterford, said he would be willing to pay for automated driving features once the technology allowed fully self-driving cars, but he would be reluctant to fork out any money for the advanced “level 2” driver assistance systems on the market today.
“I can’t think of anything that an automaker would present to me tomorrow where I was like, ‘Yeah, I’d love to pay extra for that,'” he said.
And while some consumers may be reluctant to accept additional monthly payments, recent data from the car buying website Edmunds.com Inc. indicates that car buyers are generally not put off by the rise in vehicle prices driven by an environment of high demand and low supply. , said Jessica Caldwell, executive director of ideas at Edmunds. And they’re already comfortable with automatic payments and bundling add-ons into financing their vehicle.
“It’s really going to be about the marketing, how they position it,” she said. “I think how you position it and bundle it with other things will probably be the most important thing for automakers in the future, and really explain some of the benefits and create value there.”